Boost Your Portfolio With Some 'Alaskan Spirit'

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 |  About: Alaska Air Group, Inc. (ALK)
by: Bill Gunderson

When you book a flight these days, it seems that the ticket price is only the beginning of your flight expenses. Fees to check-in baggage. Fees for the few extra pounds if it's overweight. Fees for a seat closer to the front of the plane, or with extra leg room. On a lot of carriers you even have to pay for those miniscule packages of peanuts!

For many travelers the cost, hassle, and unfriendliness of the skies is getting to be too much.

How would you like complimentary Starbucks Coffee, local craft beer, and regional wine next time you fly? This is what Alaska Air Group (NYSE:ALK) likes to call the "Alaskan Spirit" and it's their mission for all passengers to experience it.

Built on a foundation of "can-do" and "neighbor-helping-neighbor," Alaska Air Group has been caring for its travelers now more than 75 years.

Data from Best Stocks Now App

Headquartered in Seattle, WA, Alaska Air is now a nearly $6 billion mid-cap, growth and income stock in the Transportation sector.

Now if complimentary beer, wine, and Starbucks Coffee don't you get excited, how about a record past quarter and year? Or a recent increase in quarterly cash dividends?

Let's take a close look at this stock from three angles: performance, valuation, and the stock chart.

Performance

So this stock has had a record quarter and year-great! But we need to look at how it's performed all those other years. Let's see how the stock has done over the past ten years.

Data from Best Stocks Now App

Over the past 10 years, ALK has delivered average annual returns of 20% per year to investors while the market has only averaged 5%.

Over the last 5 years, ALK has done even better, delivering 46% per year while the market has delivered 19%. And over the last one year GMCR is up an impressive 62%. The market is only up 22.5%.

When I compare ALK to the rest of the 3,800 plus stocks in my database, it gets an overall performance grade of 'A'. It is one of the best performing stocks in the market over the long, intermediate, and short terms right now!

And while I like great performing stocks, I am also stingy about what I pay for them.

Valuation

Performance lets us know how the stock has done in the past. What will ALK do in the future? Let's look to the current valuation of the stock to get an idea.

Data from Best Stocks Now App

ALK is currently trading at 11 times forward earnings. It's expected to grow by 12.5% per year which means ALK is trading at a discount to its growth rate with a PEG ratio of 0.89.

When I take ALK's next year earnings estimate of $7.24 and extrapolate them out at 12.5% per year over the next five years, applying a multiple that I think is reasonable for a company like ALK, I come up with a five year target price of $132 per share.

ALK is currently trading at only $80. In other words, I see an upside potential of 70% in the stock. I typically like stocks that have at least 80% or more. But 70% upside potential still is not bad, especially when you add in a current dividend yield of 1.2%.

And if other variables make up for a slightly lackluster upside potential - such as performance and current technical patterns - I'm willing to make some exceptions.

We already know ALK is one of the top-performing stocks right now.

Stock Chart

I am a very demanding investor. I like performance, value, and a strong technical pattern! This narrows down my list of 3,800 plus stocks to a current number of about 300. ALK is one of those stocks that survives my stringent criteria.

Let's look at ALK's stock chart to see what its current technical pattern looks like. It needs to be good if it's going to qualify as a Best Stock Now. I avoid downtrends like the plague. Sideways trends need a catalyst first. Up trends are good as long as they are not too extended.

Click to enlarge

I use one-year charts to size up stocks. ALK had a little bit of a bumpy ride - no pun intended - in its first six months of this past year, but these past six months, it's really taken off!

Out of 3,821 stocks in my Best Stocks Now app database, ALK comes in at #220 and gets a Gunderson Stock Grade of 'A-'. It is also a stock that I own in my Income & Growth accounts at Gunderson Capital Mgt.

Why would anyone own bonds for income in a rising interest rate environment. I own dividend paying stocks like ALK instead. I had a great year in my income accounts in 2013.

Data from Best Stocks Now App

Data from Best Stocks Now App

Follow me on Twitter @BillGunderson for a change in my opinion on the stock and more ideas like Alaska Airlines.

Disclosure: I am long ALK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.